Rhodia Back to Positive Net Income in Second Quarter

Business Wire, July 28, 2006

PARIS -- Rhodia (NYSE:RHA)

--Net Sales(a) up 4.5%, at 1,321 million euros

--Recurring EBITDA(b) Margin of 14.2%; an increase of 18% in recurring EBITDA to 188 million euros from 159 million euros in the second quarter 2005

--Strong growth in Operating Profit, to 100 million euros from 35 million euros in the second quarter 2005

--Net Income of 78 million euros, compared to a 196 million euros loss in the second quarter 2005.

Summary income statement

Q2 2005   Q2 2006    % Variation
 In millions of euros

 After impact of
 discontinued operations
----------------------------------------------------------------------
Net Sales(a)                          1,264     1,321         4.5%
----------------------------------------------------------------------
Recurring EBITDA(b)                     159       188          18%
----------------------------------------------------------------------
Recurring EBITDA Margin                12.6%     14.2%          -
----------------------------------------------------------------------
Operating Profit                         35       100         186%
----------------------------------------------------------------------
Income/(loss) before income tax         (70)       45           -
----------------------------------------------------------------------
Profit/(loss) from continuing
 operations                             (96)       90           -
----------------------------------------------------------------------
Discontinued operations                (100)      (12)          -
----------------------------------------------------------------------
Net Income/(loss)                      (196)       78           -
----------------------------------------------------------------------

1. Results in line with 2006 objectives

Rhodia (NYSE:RHA) reported net sales(a) up 4.5% to 1,321 million euros in the second quarter 2006 from 1,264 million euros a year earlier, primarily reflecting the impact of a 3.2% increase in prices.

Operating performance improved, with recurring EBITDA(b) up 18% at 188 million euros compared with 159 million euros in the second quarter 2005. Recurring EBITDA Margin rose to 14.2%, illustrating the Group's ability to pass on price increases to offset the rise in the cost of raw materials.

Operating Profit grew strongly to 100 million euros from 35 million euros in the second quarter 2005.

The Financial Result showed a significant improvement at (55) million euros in the second quarter 2006, compared to (105) million euros in the prior-year period. Interest expenses decreased by 19 million euros. In the second quarter 2005, the Financial Result had also been impacted by non-recurring items amounting to 28 million euros.

Net Income stood at 78 million euros compared to a net loss of 196 million euros in the second quarter 2005. Net Income in the second quarter 2006 included the recognition of 60 million euros of deferred tax assets, due to a favourable outlook for future profitability in the USA; a further positive impact of 56 million euros is expected in the second half of the year.

2. Consolidated net debt stable at 2.1 billion euros

Capital Expenditure totaled 66 million euros in the second quarter 2006. The Working Capital Requirement increased by 30 million euros, in preparation for maintenance shutdowns scheduled in the third quarter. The ratio of Working Capital Requirement to total sales improved significantly to 12.8% from 14.3% at June 30, 2005.

Free Cash Flow(c) was negative at (38) million euros taking into account 24 million euros of restructuring cash costs.

Consolidated Net Debt was stable at 2.1 billion euros at June 30, 2006 compared with the March 31, 2006 figure.

3. Continued refocusing of the business portfolio

With the strategy of Rhodia Polyamide focusing on "Intermediates" and "Engineering Plastics", the Group has reclassified the European "Industrial Fibers" business under "Discontinued operations". The recurring EBITDA generated by this business, amounting to 7 million euros for the second quarter 2006 and 25 million euros for the full year 2005, is no longer included in the calculation of the Group's recurring EBITDA.

4. Outlook

In the second half of the year, market conditions should remain satisfactory in the Group's businesses and operating regions. In an environment of high raw material and energy costs, Rhodia is continuing its policy of increasing prices. The usual seasonality is expected in the third quarter.

The Group remains confident it will meet its 2006 objectives:

--A recurring EBITDA Margin of at least 13%.

--A positive Net Income for 2006.

--A ratio of Net Debt to recurring EBITDA of less than 2.9 times.

Looking further ahead, the Group reiterates its medium-term objectives.

(a) Excluding other revenues
(b) Before restructuring, amortization and depreciation, other
    operating income and expense, and capital gains and losses on
    divestments
(c) Defined as "net cash provided by operating activities" less
    "additions to property, plant and equipment" and "other capital
    investments"

  This press release and a presentation of the second quarter results
                    are available on www.rhodia.com